<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 4, 1998, or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _________
Commission file number: 0-13459
AXIOHM TRANSACTION SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2917470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 SENTRY PARK WEST, SUITE 450
1787 SENTRY PARKWAY WEST
BLUE BELL, PA 19422
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 591-0940
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes XXX No____
As of July 4, 1998, there were 6,519,301 shares of the registrant's Common
Stock outstanding.
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Condensed Consolidated Balance Sheets 1
July 4, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
July 4, 1998 and June 30, 1997 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 4, 1998 and June 30, 1997 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 4 - Submission of matters to a vote of Security Holders 24
Item 6 - Exhibits and Reports on Form 8-K 25
SIGNATURES 26
EXHIBITS INDEX 27
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <S> <C>
ASSETS
Current assets:
Cash and cash equivalents 1,811 3,877
Restricted cash -- 8,594
Accounts receivable, net 36,559 30,515
Inventories 33,956 30,103
Prepaid expenses and other current assets 12,639 11,015
--------- --------
Total current assets 84,965 84,104
Fixed assets, net of accumulated depreciation 20,451 21,535
Intangible assets 81,315 92,371
Other assets 7,713 6,034
--------- --------
Total assets 194,444 204,044
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 16,658 17,351
Current portion of long-term debt 6,178 5,948
Current portion of government grant obligations 843 649
Accrued payroll, payroll taxes and benefits 5,871 6,194
Accrued expenses 6,892 4,645
Income taxes payable -- 1,937
Deferred revenue 2,033 2,056
Rabbi Trust -- 8,594
Other current liabilities 3,515 4,481
--------- --------
Total current liabilities 41,990 51,855
Non-current liabilities:
Long-term debt 178,589 165,564
Government grant obligations 1,477 1,569
Other long-term liabilities 3,331 3,137
--------- --------
Total liabilities 225,387 222,125
--------- --------
Shareholders' equity (deficit):
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued -- --
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding:
6,512,926 shares in 1997 and 1996 24,187 23,852
Foreign currency translation adjustment (833) (658)
Accumluated deficit (54,297) (41,275)
--------- --------
Total shareholders' equity (deficit) (30,943) (18,081)
--------- --------
Total liabilities and shareholders' equity 194,444 204,044
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 1
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, June 30, July 4, June 30,
1998 1997 1998 1997
----------------------- ------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $58,617 $31,724 $115,686 $56,614
Cost of net sales 37,084 21,481 74,079 38,799
------- ------- -------- -------
Gross margin 21,533 10,243 41,607 17,815
Operating expenses:
Selling, general and administrative 9,476 2,828 18,280 5,805
Research and development 3,866 1,884 7,956 3,624
Acquisition related intangible amortization 8,461 -- 16,923 --
------- ------- -------- -------
Total operating expenses 21,803 4,712 43,159 9,429
------- ------- -------- -------
Income (loss) from operations (270) 5,531 (1,552) 8,386
Interest and other income 43 119 131 164
Interest and other expense 4,633 186 9,000 362
------- ------- -------- -------
Income (loss) before income taxes (4,860) 5,464 (10,421) 8,188
------- ------- -------- -------
Income taxes 1,426 2,112 2,601 3,212
------- ------- -------- -------
Net income (loss) ($6,286) $3,352 ($13,022) $4,976
------- ------- -------- -------
------- ------- -------- -------
Basic and diluted:
Net income (loss) per share $ (0.96) $ 0.51 $ (2.00) $ 0.76
Shares used in per share calculation 6,519 6,513 6,519 6,513
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 2
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 4, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Cashflows from operating activities:
Net income (loss) ($13,022) $ 4,976
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization 20,833 1,681
Other non-cash items 220 (75)
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable (6,044) (5,370)
Inventories (3,853) (1,241)
Accounts payable and accrued expenses (447) 1,615
Other current assets (1,624) (1,217)
Other current liabilities (966) 1,792
------- -------
Net cash provided (used in) by operating activities (4,903) 2,161
Cashflows from investing activities:
Payment for acquisition of business and other intangibles (8,582) (552)
Capital expenditures and other (1,790) (2,410)
------- -------
Net cash used in investing activities (10,372) (2,962)
Cashflows from financing activities:
Net borrowings under line of credit 15,854 1,565
Bank overdraft -- 943
Principal repayments under long term debt (2,585) (861)
Payments of dividends -- (1,768)
Exercise of stock options 115 --
Net loans to related parties -- 1,713
------- -------
Net cash provided by financing activities 13,384 1,592
Effect of exchange rate changes on cash (175) (698)
------- -------
Net increase (decrease) in cash and cash equivalents (2,066) 93
Cash and cash equivalents at beginning of period 3,877 1,839
------- -------
Cash and cash equivalents at end of period $1,811 $ 1,932
------- -------
------- -------
Supplemental Cashflow Disclosures:
Cash paid during the year for:
Interest $8,733 $ 351
Income taxes $4,538 $ 2,433
Other non-cash transactions:
Capital lease obligation -- 20
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 3
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(July 4, 1998 - Unaudited)
NOTE 1: UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the quarter ended July 4, 1998 are not necessarily indicative of the results
which may be expected for the year ended December 31, 1998 or any other
period. Reference is made to the Consolidated Financial Statements and Notes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "SEC") on March 31, 1998 as amended
on April 15, 1998.
In May 1998, Axiohm Transaction Solutions, Inc. (the "Company") changed its
fiscal year from the twelve-month period ended December 31 to the 52 or
53-week period that ends on the Saturday nearest December 31, effective for
fiscal year 1998. As a result, the Company's second quarter of 1998
represents the thirteen-week period ended on July 4, 1998, the six month
period represents the twenty-six week and four day period ended on July 4,
1998 and the Company's 1998 fiscal year will end on January 2, 1999. Fiscal
year 1998 will have fifty-three weeks. The quarter ended June 30, 1997,
contained 13 weeks and the six month period ended June 30, 1997 contained 25
weeks and 6 days. The difference between the comparable periods is not
material in terms of sales and net income (loss).
NOTE 2: BASIS OF PRESENTATION
The financial statements of Axiohm include the accounts of its wholly owned
subsidiaries in the United States, France, Mexico, the United Kingdom,
Australia, Hong Kong and Japan. All intercompany accounts and transactions
have been eliminated.
On August 21, 1997, pursuant to an Agreement and Plan of Merger dated as of
July 14, 1997 (the "Agreement of Merger"), AX Acquisition Corporation ("AX"
or the "Purchaser"), an indirect wholly-owned subsidiary of Axiohm S.A., a
private French Corporation, acquired approximately 88%, or 7,000,000 shares,
of the outstanding Common Stock of DH Technology, Inc. ("DH") through a
public tender offer to the shareholders of DH at a price of $25 per share
(the "Tender Offer").
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired,
directly or indirectly, 100% of the outstanding Common Stock of Axiohm S.A.
in exchange for 5,518,524 shares of DH Common Stock and $12.2 million in cash
(the "Share Exchange Offer"). Simultaneously with the Share Exchange Offer,
DH purchased all of the outstanding shares of AX in exchange for the
assumption of approximately $190 million of debt (the "Acquisition
Financing") incurred by AX to finance the Tender Offer. As part of the
Acquisition Financing the Company completed a private placement (the "Senior
Notes Offering") of $120 million of its 9.75% Senior Subordinated Notes due
2007. The Notes were exchanged in March 1998 for new, substantially
identical notes, which have been registered under the Securities Act of 1933,
as amended (the "Notes"). The Company's payment obligation under the Notes
is jointly and severally fully and unconditionally guaranteed on a senior
subordinated basis by certain of the Company's subsidiaries (the "Guarantor
Subsidiaries"), all of which are directly or indirectly wholly owned by the
Company. Immediately after the Share Exchange Offer, AX was merged with and
into DH (the "Merger"), the surviving legal entity, and the company changed
its name
Page 4
<PAGE>
from "DH Technology, Inc." to "Axiohm Transaction Solutions, Inc.". In
connection with the Merger, Axiohm S.A. changed its tax filing status and was
renamed Axiohm S.A.R.L. Immediately after the Merger, approximately 85% of
DH's outstanding Common Stock were held by the former shareholders of Axiohm
S.A.R.L. and approximately 15% were held by the former public shareholders of
DH.
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for in a manner similar to a reverse
acquisition, in which Axiohm S.A.R.L. was treated as the acquirer for
accounting purposes. Accordingly, the historical financial information for
periods prior to August 31, 1997 is that of Axiohm S.A.R.L. The effective
date of the Acquisition and Merger of DH for accounting purposes was August
31, 1997, and, accordingly, the capital structure of the Company has been
retroactively restated to reflect the number of shares and options
outstanding as a result of the Acquisition.
NOTE 3: INVENTORIES
The composition of inventories at July 4, 1998 and December 31, 1997 was as
follows:
July 4, 1998 December 31, 1997
------------ -----------------
Raw materials $ 26,856,000 $ 20,014,000
Work in process 1,750,000 2,328,000
Finished goods 5,350,000 7,761,000
------------ ------------
$ 33,956,000 $ 30,103,000
------------ ------------
------------ ------------
NOTE 4: COMPREHENSIVE INCOME
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130") was issued. FAS 130 requires the
disclosure of comprehensive income to reflect changes in equity that result
from transactions and economic events from non-owner sources. Comprehensive
income for the six months ended July 4, 1998 and June 30, 1997 presented
below includes foreign currency translation items. There was no tax expense
or tax benefit associated with the foreign currency translation items.
July 4, 1998 June 30, 1997
------------ -------------
Net income (loss) $(13,022) $ 4,976
Foreign currency translation adjustments (175) (697)
-------- -------
Comprehensive income (loss) $(13,197) $ 4,279
-------- -------
-------- -------
NOTE 5: GUARANTORS AND FINANCIAL INFORMATION
The following consolidating financial information is presented for purposes
of complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures with respect to the
Guarantor Subsidiaries are not presented because the Company believes that
such financial statements and other information would not provide additional
information that is material to investors.
There are no contractual restrictions, under the Notes or otherwise, upon the
ability of the Guarantor Subsidiaries to make distributions or pay dividends
to their respective equity-holders. Directly or indirectly, the Company is
the sole equity-holder of all of the Guarantor Subsidiaries.
Page 5
<PAGE>
The Company's payment obligation under the Notes is jointly and severally fully
and unconditionally guaranteed on a senior subordinated basis by the Guarantor
Subsidiaries, all of which are directly or indirectly wholly owned by the
Company.
The condensed consolidating financial information presents condensed financial
statements as of July 4, 1998 and December 31, 1997 and for the six month period
ended July 4, 1998 of:
a) the Company on a parent company only basis ("Parent") (carrying its
investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), Axiohm Japan Inc. and
AP Print S.A.R.L),
d) elimination entries necessary to consolidate the Parent Company
and its subsidiaries, and
e) the Company on a consolidated basis.
The condensed consolidating financial information also presents condensed
financial statements for the period ended June 30, 1997 of:
a) the Guarantor Subsidiaries which were in existence and were within
the Company's consolidated structure during the period ended June
30, 1997 separated as to French Guarantors (Axiohm S.A.R.L., but
excluding Dardel Technologies E.U.R.L.), and U.S. Guarantors
(Axiohm IPB, Inc.),
b) the Non-Guarantor Subsidiaries which were in existence and were
within the Company's consolidated structure during the period ended
June 30, 1997 (Axiohm Ltd. (Hong Kong) and Axiohm Japan Inc.),
c) elimination entries necessary to consolidate such Guarantor and
Non-Guarantor Subsidiaries, and
d) such Guarantor and Non-Guarantor Subsidiaries on a consolidated
basis.
The condensed consolidating financial information also presents unaudited
condensed financial statements for the six month ended June 30, 1997 for DH on a
stand alone basis:
a) the Company on a parent company only basis (for the purposes of the
following financial information referred to as "DH") (carrying its
investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries (Cognitive Solutions, Inc. and Stadia
Colorado Corp.,),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty and DH Technologia),
d) elimination entries necessary to consolidate the parent DH and
its subsidiaries, and
e) DH on a consolidated basis.
Page 6
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
July 4, 1998 (Unaudited)
----------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,153 $ (169) $(11,197) $ 1,024 $ -- $ 1,811
Restricted cash -- -- -- -- -- --
Accounts receivable, net 10,716 4,747 17,914 3,182 -- 36,559
Inventories 8,512 7,199 15,249 3,784 (788) 33,956
Prepaid expenses and other current assets 10,169 1,144 296 723 307 12,639
Intercompany (11,792) (460) 12,347 (2,205) 2,110 --
--------- -------- -------- ------- -------- ---------
Total current assets 29,758 12,461 34,609 6,508 1,629 84,965
Fixed assets, net of accumulated depreciation 4,130 3,886 10,922 1,513 -- 20,451
Intangible assets 77,841 452 3,036 (14) -- 81,315
Other assets 5,538 308 1,798 69 -- 7,713
Investment in Subsidiaries 45,029 8,739 -- -- (53,768) --
--------- -------- -------- ------- -------- ---------
Total assets $ 162,296 $ 25,846 $ 50,365 $ 8,076 $(52,139) $ 194,444
--------- -------- -------- ------- -------- ---------
--------- -------- -------- ------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 4,661 5,502 4,485 2,052 (42) 16,658
Current portion of long-term debt 5,935 215 23 5 -- 6,178
Current portion of government grant obligations -- 712 -- 131 -- 843
Accrued payroll, payroll taxes and benefits 1,922 1,789 1,694 466 -- 5,871
Accrued expenses 5,195 326 1,168 203 -- 6,892
Income taxes payable (1,324) 646 557 121 -- --
Deferred revenue 206 1,091 735 1 -- 2,033
Rabbi Trust -- -- -- -- -- --
Other current liabilities 935 3,804 -- -- (1,224) 3,515
--------- -------- -------- ------- -------- ---------
Total current liabilities 17,530 14,085 8,662 2,979 (1,266) 41,990
Non-current liabilities:
Long-term debt 176,911 1,525 32 121 -- 178,589
Government grant obligations -- 927 550 -- -- 1,477
Other long-term liabilities -- 1,628 1,607 -- -- 3,235
Deferred tax liability (2,168) 1,949 315 -- -- 96
--------- -------- -------- ------- -------- ---------
Total liabilities 192,273 20,114 11,166 3,100 (1,266) 225,387
--------- -------- -------- ------- -------- ---------
Shareholders' equity (deficit):
Common stock 24,187 4,167 -- 360 (4,527) 24,187
Foreign currency translation adjustment 133 (398) -- (142) (426) (833)
Retained earnings (accumulated deficit) (54,297) 1,963 39,199 4,758 (45,920) (54,297)
--------- -------- -------- ------- -------- ---------
Total shareholders' equity (deficit) (29,977) 5,732 39,199 4,976 (50,873) (30,943)
--------- -------- -------- ------- -------- ---------
Total liabilities and shareholders' equity $ 162,296 $ 25,846 $ 50,365 $ 8,076 $(52,139) $ 194,444
--------- -------- -------- ------- -------- ---------
--------- -------- -------- ------- -------- ---------
</TABLE>
Page 7
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 4, 1998 (Unaudited)
------------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 30,115 $ 23,719 $ 64,750 $ 12,854 $(15,752) $ 115,686
Cost of net sales 19,687 14,692 46,617 10,248 (17,165) 74,079
--------- -------- -------- -------- -------- ---------
Gross margin 10,428 9,027 18,133 2,606 1,413 41,607
Operating expenses:
Selling, general & administrative 5,521 2,190 8,259 2,310 -- 18,280
Research and development 2,170 1,825 3,692 269 -- 7,956
Acquisition related amortization 16,878 45 -- -- -- 16,923
--------- -------- -------- -------- -------- ---------
Total operating expenses 24,569 4,060 11,951 2,579 -- 43,159
--------- -------- -------- -------- -------- ---------
Income (loss) from operations (14,141) 4,967 6,182 27 1,413 (1,552)
Interest and other income 2,653 42 11 6 (2,581) 131
Interest and other expense 8,894 2,658 2 16 (2,570) 9,000
Equity earnings in subsidiaries 5,724 -- -- -- (5,724) --
--------- -------- -------- -------- -------- ---------
Income (loss) before income taxes (14,658) 2,351 6,191 17 (4,322) (10,421)
Income taxes (1,636) 2,068 1,590 39 540 2,601
--------- -------- -------- -------- -------- ---------
Net income (loss) $(13,022) $ 283 $ 4,601 $ (22) $ (4,862) $ (13,022)
--------- -------- -------- -------- -------- ---------
--------- -------- -------- -------- -------- ---------
</TABLE>
Page 8
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 4, 1998 (Unaudited)
----------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating
activities $ (7,709) $ 1,240 $ 1,660 $ (377) $ 283 $ (4,903)
Cashflows from investing activities:
Payment for acquisition of business and other
intangibles (8,055) (527) -- -- -- (8,582)
Capital expenditures and other (405) (221) (1,164) -- -- (1,790)
-------- ------- -------- ------- ----- --------
Net cash provided by (used in) investing
activities (8,460) (748) (1,164) -- -- (10,372)
Cashflows from financing activities:
Net borrowings under line of credit 15,854 -- -- -- -- 15,854
Principal repayments under long term debt (1,600) (958) (27) -- -- (2,585)
Payments of dividends -- -- -- -- -- --
Exercise of stock options 115 -- -- -- -- 115
Net loans to related parties -- -- -- -- -- --
-------- ------- -------- ------- ----- --------
Net cash provided by (used in) financing
activities 14,369 (958) (27) -- -- 13,384
Effect of exchange rate changes on cash 93 159 -- (144) (283) (175)
-------- ------- -------- ------- ----- --------
Net increase in cash and cash equivalents (1,707) (307) 469 (521) -- (2,066)
Cash and cash equivalents at beginning of period 13,860 138 (11,666) 1,545 -- 3,877
-------- ------- -------- ------- ----- --------
Cash and cash equivalents at end of period $ 12,153 $ (169) $(11,197) $ 1,024 $ -- $ 1,811
-------- ------- -------- ------- ----- --------
-------- ------- -------- ------- ----- --------
</TABLE>
Page 9
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- ------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,860 $ 138 $(11,666) $ 1,545 $ -- $ 3,877
Restricted cash 8,594 -- -- -- -- 8,594
Accounts receivable, net 10,388 3,760 15,209 3,099 (1,941) 30,515
Inventories 3,611 4,995 17,140 4,600 (243) 30,103
Prepaid expenses and other current assets 4,235 9,759 437 (3,316) (100) 11,015
Intercompany (14,259) 2,612 11,514 (1,761) 1,894 --
--------- ------ -------- -------- -------- --------
Total current assets 26,429 21,264 32,634 4,167 (390) 84,104
Fixed assets, net of accumulated depreciation 3,847 4,052 11,679 1,957 -- 21,535
Intangible assets 88,555 93 3,521 202 -- 92,371
Other assets 5,428 413 418 83 (308) 6,034
Investment in Subsidiaries 45,030 -- -- -- (45,030) --
--------- ------- -------- -------- -------- --------
Total assets $ 169,289 $25,822 $48,252 $ 6,409 $(45,728) $204,044
--------- ------- -------- -------- -------- --------
--------- ------- -------- -------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 2,511 6,569 6,767 1,504 -- 17,351
Current portion of long-term debt 5,689 227 32 -- -- 5,948
Current portion of government grant obligations -- 649 -- -- -- 649
Accrued payroll, payroll taxes and benefits 689 3,558 1,947 -- -- 6,194
Accrued expenses 1,620 1,196 2,113 (284) -- 4,645
Income taxes payable 1,937 174 (174) -- -- 1,937
Deferred revenue 416 1,121 519 -- -- 2,056
Rabbi Trust 8,594 -- -- -- -- 8,594
Other current liabilities 4,481 -- -- -- -- 4,481
--------- ------ -------- -------- -------- --------
Total current liabilities 25,937 13,494 11,204 1,220 -- 51,855
Non-current liabilities:
Long-term debt 162,903 2,014 600 47 -- 165,564
Government grant obligations -- 1,569 -- -- -- 1,569
Other long-term liabilities (2,168) 3,455 1,850 -- -- 3,137
--------- ------ -------- -------- -------- --------
Total liabilities 186,672 20,532 13,654 1,267 -- 222,125
--------- ------ -------- -------- -------- --------
Shareholders' equity (deficit):
Common stock 23,852 4,167 -- 360 (4,527) 23,852
Foreign currency translation adjustment 40 (557) -- 2 (143) (658)
Retained earnings (accumulated deficit) (41,275) 1,680 34,598 4,780 (41,058) (41,275)
--------- ------ -------- -------- -------- --------
Total shareholders' equity (deficit) (17,383) 5,290 34,598 5,142 (45,728) (18,081)
--------- ------ -------- -------- -------- --------
Total liabilities and shareholders' equity $ 169,289 $ 25,822 $ 48,252 $ 6,409 $ (45,728) $204,044
--------- ------ -------- -------- -------- --------
--------- ------ -------- -------- -------- --------
</TABLE>
Page 10
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
-----------------------------------------------------------------------
Guarantor Subsidiaries
----------------------- Non-Guarantor
French US Subsidiaries Eliminations Consolidated
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $21,303 $48,397 $ 899 $(13,985) $56,614
Cost of net sales 13,780 37,270 804 (13,055) 38,799
------- ------- ----- -------- -------
Gross margin 7,523 11,127 95 (930) 17,815
Operating expenses:
Selling, general & administrative 2,392 3,001 305 (34) 5,664
Research and development 1,581 2,090 -- (47) 3,624
Acquisition related amortization -- 102 -- -- 102
------- ------- ----- -------- -------
Total operating expenses 3,973 5,193 305 (81) 9,390
------- ------- ----- -------- -------
Income (loss) from operations 3,550 5,934 (210) (849) 8,425
Interest and other income 71 30 (1) (38) 62
Interest and other expense 47 251 1 -- 299
Equity earnings in subsidiaries -- -- -- -- --
------- ------- ----- -------- -------
Income (loss) before income taxes 3,574 5,713 (212) (887) 8,188
Income taxes 1,310 2,228 -- (326) 3,212
------- ------- ----- -------- -------
Net income (loss) $ 2,264 $ 3,485 $(212) $ (561) $ 4,976
------- ------- ----- -------- -------
------- ------- ----- -------- -------
</TABLE>
Page 11
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
-----------------------------------------------------------------------
Guarantor Subsidiaries
----------------------- Non-Guarantor
French US Subsidiaries Eliminations Consolidated
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities 2,551 (10) (368) (13) 2,160
Cashflows from investing activities:
Payment for acquisition of business and other
intangibles -- (552) -- -- (552)
Capital expenditures and other (1,095) (1,300) (15) -- (2,410)
------- ------- ---- ----- -------
Net cash provided by (used in) investing activities (1,095) (1,852) (15) -- (2,962)
Cashflows from financing activities:
Net borrowings under line of credit 1,277 1,240 (9) -- 2,508
Principal repayments under long term debt (753) (108) -- -- (861)
Payments of dividends (1,768) -- -- -- (1,768)
Exercise of stock options -- -- -- -- --
Net loans to related parties 912 500 301 -- 1,713
------- ------- ---- ----- -------
Net cash provided by (used in) financing activities (332) 1,632 292 -- 1,592
Effect of exchange rate changes on cash (727) -- 17 13 (697)
------- ------- ---- ----- -------
Net increase in cash and cash equivalents 397 (230) (74) -- 93
Cash and cash equivalents at beginning of period 1,494 230 115 -- 1,839
------- ------- ---- ----- -------
Cash and cash equivalents at end of period $ 1,891 $ -- $ 41 $ -- $ 1,932
------- ------- ---- ----- -------
------- ------- ---- ----- -------
</TABLE>
Page 12
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
-------------------------------------------------------------------------
Guarantor Non-Guarantor
DH Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 25,045 $ 11,908 $ 12,193 $ (4,493) $ 44,653
Cost of net sales 15,658 8,543 8,884 (3,743) 29,342
-------- -------- -------- -------- --------
Gross margin 9,387 3,365 3,309 (750) 15,311
Operating expenses:
Selling, general & administrative 4,162 2,422 1,735 -- 8,319
Research and development 1,683 944 264 42 2,933
Acquisition related amortization 11,680 -- -- -- 11,680
-------- -------- -------- -------- --------
Total operating expenses 17,525 3,366 1,999 42 22,932
-------- -------- -------- -------- --------
Income (loss) from operations (8,138) (1) 1,310 (792) (7,621)
Interest and other income 710 1 105 -- 816
Interest and other expense 58 1 22 -- 81
Equity earnings in subsidiaries 955 -- -- (955) --
-------- -------- -------- -------- --------
Income (loss) before income taxes (6,531) (1) 1,393 (1,747) (6,886)
Income taxes (431) (2) 439 (792) (786)
-------- -------- -------- -------- --------
Net income (loss) $(6,100) $ 1 $ 954 $ (955) $ (6,100)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Page 13
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
------------------------------------------------------------------------
Guarantor Non-Guarantor
DH Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities 6,023 (267) 1,495 -- 7,251
Cashflows from investing activities:
Net increase in short-term investment
securities held to maturity 2,675 -- -- -- 2,675
Payment for acquisition of business and other
intangibles (4,850) (4,850)
Capital expenditures and other (554) (304) (97) -- (955)
------- ------- ------- ----- -------
Net cash provided by (used in) investing activities (2,729) (304) (97) -- (3,130)
Cashflows from financing activities:
Principal repayments under long term debt (50) (33) (38) -- (121)
Exercise of stock options 172 -- -- -- 172
------- ------- ------- ----- -------
Net cash provided by (used in) financing activities 122 (33) (38) -- 51
Effect of exchange rate changes on cash (66) -- (298) -- (364)
------- ------- ------- ----- -------
Net increase in cash and cash equivalents 3,350 (604) 1,062 -- 3,808
Cash and cash equivalents at beginning of period 34,517 (8,603) 5,029 -- 30,943
------- ------- ------- ----- -------
Cash and cash equivalents at end of period $37,867 $(9,207) $ 6,091 $ -- $ 34,751
------- ------- ------- ----- -------
------- ------- ------- ----- -------
</TABLE>
Page 14
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included herein.
BACKGROUND
The Company was formed from the combination of Axiohm S.A. a French
corporation ("Axiohm") and DH Technology, Inc. ("DH"). On August 21, 1997,
AX Acquisition Corporation, an indirect wholly-owned subsidiary of Axiohm
("Purchaser"), acquired 7,000,000 shares of the Common Stock of DH
(approximately 88%) through a tender offer to the shareholders of DH ("the
Tender Offer"), resulting in a change in control of DH. On October 2, 1997,
the Purchaser exchanged 5,518,524 shares of the Common Stock it had acquired
in the Tender Offer and approximately $12.2 million in cash for certain of
the outstanding shares of capital stock of Axiohm and all of the outstanding
shares of capital stock of Dardel Technologies S.A. ("Dardel"), which held
the remaining shares of capital stock of Axiohm. Immediately after this
exchange, DH purchased from Axiohm IPB all of Purchaser's outstanding capital
stock in exchange for the assumption by DH of the obligations incurred in
financing the Tender Offer. Purchaser was then merged with and into DH (the
"Merger"), and the remaining 1,481,476 shares of DH's Common Stock acquired
in the Tender Offer and held by Purchaser at the time of the Merger were
canceled in the Merger. Simultaneously, DH changed its name to Axiohm
Transaction Solutions, Inc. The aggregate initial purchase price of $209.1
million consisted of cash for DH shares and stock options, transaction costs
and the fair value of DH shares not tendered. The above transactions were
financed with (i) borrowings of approximately $57.0 million, under a new $85
million credit facility that provides term loans in the aggregate principal
amount of $50.0 million (the "Term Loan Facility), and revolving loans and
letters of credit of up to $35.0 million (the "Revolving Credit Facility",
and together with the Term Loan Facility, the "New Credit Facility") (ii) the
proceeds of the Offering of $120,000,000 of its 9 3/4% Senior Subordinated
Notes due in 2007, which were exchanged in March 1998 for equivalent notes
which have been registered under the Securities Act (the "Notes").
Although DH was the surviving legal entity, the transaction was accounted for
as a purchase of DH by Axiohm. For the second quarter of 1997 and first six
months of 1997, the following discussion includes the results of operations
of Axiohm only. While the effective date of the Merger was October 2, 1997
for legal purposes, the effective date of the acquisition of DH for
accounting purposes was August 31, 1997.
In connection with the foregoing transactions, the Company recorded
approximately $102.1 million of goodwill and other intangibles which is being
amortized over three years using the straight line method, which is the
period estimated to be benefited. On July 28, 1998 the Company announced a
major restructuring program designed to streamline operations and improve
manufacturing efficiencies. As part of this program, the Company will
consolidate its Paso Robles, California and Riverton, Wyoming manufacturing
operations principally into its Ithaca, New York manufacturing operation.
The Company expects that these actions will result in the reduction of
approximately 200 jobs in the closing locations and the addition of
approximately 100 jobs in Ithaca, New York. This final program is a result
of an assessment that began at the time of the acquisition of DH Technology.
The Company expects that when the consolidation moves are completed by late
1999, pre-tax operating costs will be reduced by approximately $3.5 million a
year. The Company expects to incur approximately $6 million of costs to
fully implement the plan by the end of 1999, of which approximately $3
million was recorded in the second quarter of 1998 as an adjustment of the
purchase price of DH Technology, Inc. thereby increasing goodwill and other
intangibles from $102.1 million to $105 million.
Page 15
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 4, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES. Net Sales of $58.6 million for the second quarter of 1998
increased 84.8%, or $26.9 million, compared to net sales of $31.7 million for
the same period last year. Slightly more than 90% of the increase was the
result of the inclusion of sales of DH; the balance was due to growth in the
existing business which reflects increased unit volume of transaction
printers and printer mechanisms partially offset by a decline in average
selling prices.
COST OF NET SALES. Cost of net sales of $37.1 million decreased to 63.3% of
net sales for the second quarter of 1998 from 67.7% of net sales for the same
period of 1997, due primarily to the following four factors: a favorable
impact of the exchange rate between the U.S. dollar and the French franc for
products manufactured in France and sold in the U.S.; lower purchase prices
of components and parts; continuing technology improvements; and higher
absorption of relatively fixed overhead costs partially offset by a decrease
in average selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses of $9.5 million increased to 16.2% of net sales in
the second quarter of 1998 from 8.9% in the same period in 1997. The
majority of the increase was due to the inclusion of expenses of DH and costs
related to the acquisition of DH; the balance was primarily the result of
higher staffing levels and expenses needed to support higher sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses as a
percentage of net sales increased to 6.6% in the second quarter of 1998
compared to 5.9% in the second quarter of 1997. Total dollars expended for
research and development increased $2.0 million to $3.9 million in the second
quarter of 1998 compared to $1.9 million in the second quarter of 1997
primarily due to the inclusion of expenses of DH. In addition, the Company
believes that continued timely development of new products and enhancements
to existing products are essential to maintaining the Company's competitive
position. Accordingly, the Company anticipates that such expenses will
increase in absolute dollar terms for the foreseeable future.
ACQUISITION RELATED INTANGIBLE AMORTIZATION. The Company anticipates that,
on a quarterly basis through the third quarter of 2000, operating expenses
will include approximately $8.9 million in non-cash acquisition related
charges which principally includes non-cash intangibles amortization.
INCOME (LOSS) FROM OPERATIONS. Loss from operations for the second quarter
of 1998 was $0.3 million, compared to income from operations of $5.5 million
in the same period for 1997. The loss from operations in the second quarter
of 1998 was due to the acquisition related amortization charges discussed
above.
INTEREST AND OTHER EXPENSE. Interest expense increased to $4.6 million in
the second quarter of 1998 from $0.2 million for the same period in 1997 due
to interest payments on the New Credit Facility and Notes.
INCOME TAXES. Provision for income taxes of $1.4 million in the second
quarter of 1998 decreased $0.7 million from $2.1 million in 1997. Although
the company reported a loss before income taxes, a provision for income taxes
was recorded because goodwill amortization was not deductible for income tax
purposes. In addition the company pays income taxes in foreign countries,
principally France, on income earned in those countries. Income taxes as a
percentage of income before taxes, excluding the effect of acquisition
related charges, was approximately 39.7% compared to 38.7% in 1997.
Page 16
<PAGE>
SIX MONTHS ENDED JULY 4, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES. Net Sales of $115.7 million for the first six months of 1998
increased 104.3%, or $59.1 million, compared to net sales of $56.6 million
for the same period last year. Approximately 85% of the increase was the
result of the inclusion of sales of DH; the balance was due to growth in the
existing business which reflects increased unit volume of transaction
printers and printer mechanisms partially offset by a decline in average
selling prices.
For the second six months of 1998 the company currently anticipates generally
flat sales and a decline in operating income before acquisition related
charges and amortization and restructuring charges compared to the first six
months of 1998 because of new product delays and lower order rates from one
customer.(1)
COST OF NET SALES. Cost of net sales of $74.1 million decreased to 64.0% of
net sales for the first six months of 1998 from 68.5% of net sales for the
same period of 1997, due primarily to the following four factors: a favorable
impact of the exchange rate between the U.S. dollar and the French franc for
products manufactured in France and sold in the U.S.; lower purchase prices
of components and parts; continuing technology improvements; and higher
absorption of relatively fixed overhead costs partially offset by a decrease
in average selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses of $18.3 million increased to 15.8% of net sales in
the first six months of 1998 from 10.3% in the same period in 1997. The vast
majority of the increase was due to the inclusion of expenses of DH and costs
related to the acquisition of DH; the balance was primarily the result of
higher staffing levels and expenses needed to support higher sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses as a
percentage of net sales increased to 6.9% in the first six months of 1998
compared to 6.4% in the first six months of 1997. Total dollars expended for
research and development increased $4.4 million to $8.0 million in the first
six months of 1998 compared to $3.6 million in the same period of 1997
primarily due to the inclusion of expenses of DH. In addition, the Company
believes that continued timely development of new products and enhancements
to existing products are essential to maintaining the Company's competitive
position. Accordingly, the Company anticipates that such expenses will
increase in absolute dollar terms for the foreseeable future.
ACQUISITION RELATED INTANGIBLE AMORTIZATION. The Company anticipates that,
on a quarterly basis through the third quarter of 2000, operating expenses
will include approximately $8.9 million in non-cash acquisition related
charges which principally includes non-cash intangible amortization.
INCOME (LOSS) FROM OPERATIONS. Loss from operations for the first six months
of 1998 was $1.6 million, compared to income from operations of $8.4 million
in the same period for 1997. The loss from operations in the first six
months of 1998 was due to the acquisition related amortization charges
discussed above.
INTEREST AND OTHER EXPENSE. Interest expense increased to $9.0 million in
the first six months of 1998 from $0.4 million for the same period in 1997
due to interest payments on the New Credit Facility and Notes.
INCOME TAXES. Provision for income taxes of $2.6 million in the first six
months of 1998 decreased $0.6 million from $3.2 million in 1997. Although
the company reported a loss before income taxes, a provision for income taxes
tax was recorded because goodwill amortization was not deductible for federal
income tax purposes. In addition the company pays income taxes in foreign
countries, principally France, on
- ----------------------------
(1) Forward looking statements
Page 17
<PAGE>
income earned in those countries. Income taxes as a percentage of income
before taxes, excluding the effect of acquisition related charges, was
approximately 40.0% compared to 39.2%.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The risk factors set forth below are important factors that may affect future
results and that could cause actual results to differ materially from those
projected in forward-looking statements that may be made by the Company from
time to time, including the forward-looking statements included in this
report.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE. On July 4, 1998, the Company's total
debt (net of cash) was $185.3 million and the Company had a shareholders'
deficit of $30.9 million. Required principal payments under the New Credit
Facility and Notes (excluding the Revolver) are as follows: $1.6 million
remaining in 1998; $7.8 million in 1999; $7.8 million in 2000; $9.1 million
in 2001; $5.6 million in 2002; $12.25 million in 2003; and $120.0 million in
2007. In 1998, it is anticipated that capital expenditures will not exceed
the limit of $10.5 million permitted under the New Credit Facility.
The Company's ability to make scheduled payments of principal, or to pay the
premium, if any, interest or liquidated damages, if any, thereon, or to
refinance its indebtedness, or to fund planned capital expenditures, will
depend upon its future performance, which, in turn, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond its control. There can be no assurance that the Company's
business will generate cash flow at or above anticipated levels or that the
Company will be able to borrow funds under the New Credit Facility in an
amount sufficient to enable the Company to service its indebtedness or make
anticipated capital expenditures. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the
future to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing indebtedness or
obtain additional financing. There can be no assurance that any such
refinancing would be available on commercially reasonable terms, or at all,
or that any additional financing could be obtained, particularly in view of
the Company's high level of indebtedness, the restrictions on the Company's
ability to incur additional indebtedness under the New Credit Facility and
the indenture under which the Notes were issued (the "Indenture"), and the
fact that substantially all of the Company's and its subsidiaries' assets
have been pledged to secure obligations under the New Credit Facility.
In addition, the Indenture and the New Credit Facility contain financial and
other restrictive covenants that limit, among other things, the ability of
the Company to borrow additional funds. Failure by the Company to comply with
such covenants could result in events of default under the Indenture and the
New Credit Facility which, if not cured or waived, could permit the
indebtedness thereunder to be accelerated which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
FUTURE OPERATING RESULTS SUBJECT TO FLUCTUATION. The Company's operating
results may fluctuate in the future as a result of a number of factors,
including the timing of customer orders, timing of completion of existing
customer contracts, variations in the Company's sales channels or the mix of
products it sells, changes in pricing policies by the Company's suppliers,
fluctuations in manufacturing yields, market acceptance of new and enhanced
versions of the Company's products and the timing of acquisitions of other
businesses, products and technologies and any associated charges to earnings.
In addition, the Company periodically evaluates the possible impairment of
goodwill to determine whether events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable. Further, the
Company's expense levels are based in part on expectations of future
revenues. If anticipated sales and shipments in any quarter do not occur when
expected, operating expenses and inventory levels could be disproportionately
high and the Company's operating results for that quarter, and potentially
for future quarters, would be adversely affected. The Company's operating
results could also be affected by general economic conditions. Fluctuations
in operating results are likely to cause volatility in the price of the
Company's Common Stock.
Page 18
<PAGE>
Axiohm has historically experienced, and the Company expects to continue to
experience, relatively lower levels of sales of existing transaction printers
during the period from mid-November to the end of December primarily in the
United States. The Company believes that this seasonality has been caused by
the fact that some of its POS customers do not install new systems in their
facilities between Thanksgiving and Christmas, so as not to disturb their
sales flow during this heavy selling period.
The Company's customers encounter uncertain and changing demand for their
products. They typically order products from the Company based on their
forecasts. If demand falls below customers' forecasts, or if customers do not
control their inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company has in the past
experienced, and may at any time and with minimal notice in the future
experience, cancellations and postponements of orders.
DEPENDENCE ON PRINCIPAL CUSTOMER. Sales to NCR Corporation ("NCR"), the
Company's largest customer, represented 52% and 35%, respectively, of net
sales for the years ended December 31, 1996 and December 31, 1997. No other
customer accounted for more than 10% of net sales for the year ended December
31, 1996 or December 31, 1997. On September 2, 1997, Axiohm IPB entered into
a three-year contract with NCR (the "NCR Contract"). The NCR Contract
provides that NCR and Axiohm IPB intend and expect that NCR will purchase
from Axiohm IPB substantially all of its requirements for transaction
printers of the type manufactured by Axiohm IPB (the "Covered Products"). In
case there is reason to believe that NCR is purchasing less than 75% of its
requirements for Covered Products from Axiohm IPB at any time during the term
of the agreement, there is an obligation for both parties to work together in
good faith to eliminate such deficiency. The NCR Contract provides that NCR's
purchase commitment is subject to Axiohm IPB's ability to meet NCR's
specifications and requirements for price, performance, quality, service and
delivery with respect to such Covered Products. Any failure by NCR to
continue purchasing products from the Company at historical levels or the
termination of the NCR Contract would have a material adverse effect on the
Company's business, financial condition and operating results. Sales of
certain products in 1998 not covered by its contract with NCR are expected to
approximate 1997's level of approximately 5% of combined pro-forma revenues
of $212 million, and the Company does not anticipate significant revenue from
these products in 1999. In the second quarter Solectron Corp. was assigned
the NCR business as part of the sale of certain NCR manufacturing operations
to Solectron Corp. and is expected to be the Company's largest customer in
1998. The company currently expects that this assignment will not have a
material adverse impact on its financial position or results of
operations.(1)
COMPETITION. The Company has a number of significant domestic and foreign
competitors for its transaction printer, bar code printer and card reader
products. Many of the Company's competitors have significantly greater
financial, technical and marketing resources than does the Company. To remain
competitive, the Company believes that it will be required to maintain a high
level of technological expertise and deliver reliable cost-effective products on
a timely basis. There can be no assurance that the Company will have sufficient
resources to continue to make the investments necessary to maintain its
competitive position or that other competitors with substantially greater
financial resources, including other manufacturers of non-transaction printers,
will not attempt to enter the market. A failure to remain competitive would have
a material adverse effect on the Company's business, financial condition and
results of operations.
INTEGRATION OF OPERATIONS. The integration of the administrative, finance and
manufacturing operations of Axiohm and DH, the coordination of their respective
sales and marketing staffs and the implementation of appropriate operational,
financial and management systems and controls will require significant financial
resources and substantial attention from management. During the second quarter,
as part of the plan to achieve purchasing, manufacturing and other synergies
begun with the acquisition of DH, the Company finalized and announced its plan
on July 28th to consolidate two of its manufacturing operations principally into
its Ithaca, New York manufacturing operation as discussed above. The Company
expects to incur $6 million in costs through 1999 related to consolidation of
these two facilities and expects to realize annual
- -----------------------------
(1) Forward looking statement
Page 19
<PAGE>
savings of approximately $3.5 million by the end of 1999(1). The company
recorded $3 million in additional goodwill in the second quarter related to
the closure of the two former DH manufacturing operations. Any inability of
the Company to integrate these operations successfully in a timely and
efficient manner could have a material adverse effect on the Company's
business, financial condition and results of operations and would adversely
affect its ability to realize its planned cost savings or would require
additional expenditures to realize such cost savings. In addition, even if
the businesses of Axiohm and DH are successfully integrated, no assurance can
be given that future expenses can be reduced by the expected cost savings.
The Company's prospects should be considered in light of the numerous risks
commonly encountered in business combinations. In addition, the historical
financial statements presented in this Report may not necessarily be
indicative of the results that would have been attained had the Company
actually operated on a combined basis.
TECHNOLOGICAL CHANGE; COMPETITION; DEPENDENCE ON NEW PRODUCTS. The markets
for some of the Company's products are characterized by frequent new product
introductions and declining average selling prices over product life cycles.
The Company's future success is highly dependent upon the timely completion
and introduction of new products at competitive price/performance levels. In
addition, the Company must respond to current competitors, who may choose to
increase their presence in the Company's markets, and to new competitors, who
may choose to enter those markets. If the Company is unable to make timely
introduction of new products or respond to competitive threats, its business
and operating results could be materially adversely affected. The Company
expects that delays in new product introductions in 1998 and delays in
customer orders will cause sales to remain generally flat during the next two
quarters (1).
INTERNATIONAL SALES AND OPERATIONS. The Company expects that international
sales will continue to represent a significant portion of its net sales.
Although the Company's net sales are denominated in U.S. dollars, its
international business may be affected by changes in demand resulting from
fluctuations in exchange rates as well as by risks such as tariff regulations
and difficulties in obtaining export licenses. In addition, historically the
French operations of Axiohm S.A.R.L. have incurred a majority of Axiohm
S.A.R.L.'s expenses in French francs, while a substantial majority of Axiohm
S.A.R.L.'s revenues have been in U.S. dollars. Any material appreciation in
the French franc relative to the U.S. dollar would, absent any effects
associated with hedging or currency trading transactions, detrimentally
affect the financial performance of the Company's French operations. The
Company attempts to limit its exposure to French franc currency fluctuation
compared to the U.S. dollar by entering into various financial instruments,
including forward exchange contracts, to offset its French franc denominated
expenses with associated U.S. dollar denominated revenue, if, in the opinion
of the Company, to do so would mitigate foreign exchange losses. The forward
exchange contracts the Company has entered into are marked to market, with
any exchange gains or losses and associated costs recognized in the income
statement. The Company cannot predict the effect of exchange rate
fluctuations upon future operating results.
INTELLECTUAL PROPERTY RIGHTS. The Company holds various U.S. and foreign
patents on impact printheads, transaction printers, magnetic card readers and
bar code products and has applied for additional domestic and foreign
patents. The basic technology for many of the Company's products is based
upon these patents and on manufacturing expertise. There can be no assurance
that any issued patents will provide the Company with competitive advantages
or will not be challenged by third parties, or that the patents of others
will not have a material adverse effect on the Company's ability to do
business, or that others will not independently develop similar products,
duplicate the Company's products, or design around the patents issued to the
Company.
The Company has in the past been, and may in the future be, notified that it may
be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past commenced, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. Any such litigation initiated by the Company or by others is,
at a minimum, costly, and
- -----------------------------
(1) Forward looking statement
Page 20
<PAGE>
can divert the efforts and attention of the Company's management and
technical personnel, which can have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that other infringement claims by
third parties or other claims for indemnification by customers or end-users
of the Company's products resulting from infringement claims will not be
asserted in the future or that such assertions, if proven to be true, will
not have a material adverse effect on the Company's business, financial
condition and results of operations. If any such claims are asserted against
the Company, the Company may seek to obtain a license under the third party's
intellectual property rights. There can be no assurance, however, that a
license will be available on commercially reasonable terms, if at all. The
Company could decide, in the alternative, to resort to litigation to
challenge such claims or to design around the patented technology. Such
actions could be costly and would divert the efforts and attention of the
Company's management and technical personnel, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANAGEMENT OF FUTURE ACQUISITIONS. Historically, the Company has achieved a
portion of its growth through acquisitions of other businesses, and the
Company intends to pursue additional acquisitions as part of its growth
strategy. There are a number of risks associated with any acquisition,
including the substantial time and attention required from management of the
Company in connection with such transactions, the difficulty of predicting
whether the operations will perform as expected and other problems inherent
with any transition of one business organization into another. There can be
no assurance that the Company will be able to consummate any beneficial
acquisitions in the future or that the anticipated benefits of any
acquisition will be realized. If any such acquisitions are consummated, a
failure by the Company to manage any such acquisitions successfully could
have a material adverse effect on the Company's business, financial condition
and results of operations. Additionally, there may be future acquisitions
that could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets associated with the
acquisitions of other businesses, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
FUTURE SALE OF AXIOHM EXCHANGE SHARES. In May 1998, the Company registered
with the SEC an aggregate of 5,515,858 shares of Common Stock held by the
former shareholders of Axiohm S.A.R.L. and Dardel for sale by such
shareholders from time to time in the open market or in private transactions.
Such sales, or the potential for such sales, could have a material adverse
effect on the market price for the Company's Common Stock.
YEAR 2000 COMPLIANCE. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000"
requirements.
The Company has purchased the necessary hardware and software, and is
currently in the process of implementing firm-wide, Oracle enterprise
resource planning system ("ERP") Version 10.6. To date, Version 10.6 has been
implemented in several locations and is expected to be implemented in other
locations. Although Version 10.6 does not fully address Year 2000
requirements, the Company believes that Oracle ERP Version 10.7 does. Such
Version 10.7 has already been released by Oracle, and the Company anticipates
implementing such Version 10.7 prior to the beginning of the year 2000. The
total cost to the Company of converting to Oracle ERP firm-wide, is estimated
to be approximately $1.5 million.
Failure to implement Oracle ERP Version 10.7 or some other form of enterprise
software that addresses Year 2000 requirements prior to the year 2000 might
result in significant difficulties in the Company's administration of
invoicing and payables and other processes. Such difficulties could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Page 21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary anticipated sources of capital are cash flow from
operations and borrowings under the New Credit Facility. For the first half
of 1998, operating income plus depreciation and amortization was $19.3
million. Cash used by operating activities in the first half of 1998 was $5.2
million which is primarily the result of an increase in working capital of
$13.2 million in excess of the net loss plus depreciation and amortization.
The Company's primary capital requirements include debt service, capital
expenditures and working capital. The Company's ability to make scheduled
payments of principal and interest to refinance its indebtedness, or to fund
planned capital expenditures, will depend upon its future performance, which,
in turn, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. At the time of the
acquisition of DH, the Company implemented a plan to achieve purchasing,
manufacturing and other synergies. As part of this plan, the Company
announced a major restructuring program that will consolidate two of its
former DH manufacturing operations principally into its Ithaca, New York
manufacturing operation as discussed above.
Required principal payments under the New Credit Facility and Notes
(excluding the Revolver) are as follows: $1.6 million remaining in 1998; $7.8
million in 1999; $7.8 million in 2000; $9.1 million in 2001; $5.6 million in
2002; $12.25 million in 2003; and $120 million in 2007. It is anticipated
that capital expenditures in 1998 will not exceed the maximum permitted under
the New Credit Facility of $10.5 million. There can be no assurance, however,
that the Company's business will generate cash flow at or above anticipated
levels or that the Company will be able to borrow funds under the New Credit
Facility in an amount sufficient to enable the Company to service its
indebtedness, or make anticipated capital expenditures. In particular, there
can be no assurance that anticipated revenue growth will be achieved at the
levels currently anticipated or at all. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the
future to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing indebtedness, or
obtain additional financing. There can be no assurance that any such
refinancing would be available on commercially reasonable terms, or at all,
or that any additional financing could be obtained, particularly in view of
the Company's high level of debt.
At July 4, 1998, the Company's total debt (net of cash) including government
grant obligations was $185.3 million, including $17.0 million under the
revolving credit facility. Debt levels increased since December 31, 1997 due
to borrowings against the line of credit to fund payments made to former
officers of $3.5 million, the payment of $5.9 million of subordinated
interest expense and working capital requirements in excess of net income
plus depreciation and amortization. The next interest payment of $5.9
million is due October 1, 1998.
The New Credit Facility and the Notes impose, and other debt instruments of
the Company may, impose various restrictions and covenants on the Company
which could potentially limit the Company's ability to respond to market
conditions, to provide for unanticipated capital investments, to raise
additional debt or equity capital, or to take advantage of business
opportunities. The New Credit Facility includes various financial covenants
of the Company, including covenants with respect to the maximum capital
expenditures, a maximum ratio of debt to EBITDA, a minimum interest coverage
ratio and a minimum fixed charge coverage ratio. As indicated above, the
company's future compliance with these covenants will depend on future
performance which, in turn, is subject to general economic, financial,
competitive, legislative, regulatory and other factors, which are beyond its
control. Its compliance depends on the timing of orders from customers,
timing of new product introductions, capital expenditures, working capital
requirements, gross margins and expense levels. The New Credit Facility
subjects the Company to certain negative covenants, including without
limitation covenants that restrict, subject to specified exceptions: the
incurrence of additional indebtedness and other obligations and the granting
of additional liens; mergers and acquisitions, investments and acquisitions
and dispositions of assets; the incurrence of capitalized lease obligations;
investments, loans and advances; dividends, stock repurchases and
redemptions; prepayment or repurchase of other indebtedness and other
provisions. The Company has entered into a $20 million interest rate swap
agreement with a major financial institution. This swap
Page 22
<PAGE>
agreement has the effect of converting certain variable rate debt to defined
rate obligations and expires in November, 1999. Net amounts paid or received
are accrued on a settlement basis as adjustments to interest expense.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is
subordinated to the Company's obligations under the New Credit Facility.
Interest is payable semi-annually on the unpaid principal at 9.75% per annum.
The first payment of $5.9 million was paid April 1, 1998. The Indenture
contains covenants regarding: restricted payments, incurrence of
indebtedness, liens, dividends, merger, consolidation or sale of assets, and
transactions with affiliates.
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the New Credit Facility or
otherwise, upon the ability of the Guarantor Subsidiaries to make distributions
or pay dividends to their respective equityholders. Directly or indirectly, the
Company is the sole equity-holder of all of the Guarantor Subsidiaries.
Page 23
<PAGE>
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1998 Annual Meeting of the Shareholders of DH
Technology, Inc. was held at the Sheraton Hotel West Tower
on Harbor Island, San Diego, California, 92101, on April 28,
1998, at 10:00 a.m. (the "Annual Meeting").
(b) At the Annual Meeting, the following five persons were elected to the
Company's Board of Directors, constituting all members of the Board of
Directors:
<TABLE>
<CAPTION>
Number of Votes
------------------------------------------------
Broker
Nominees Cast For Withheld or Against Non-Votes
-------------------------------------------------------------------------
<S> <C> <C> <C>
Nicolas Dourassoff 5,648,406,000 616,000 0
Patrick Dupuy 5,649,022,000 0 0
Gilles Gibier 5,649,022,000 0 0
William H. Gibbs 5,411,727,000 237,295,000 0
Don M. Lyle 5,450,763,000 198,259,000 0
</TABLE>
(c) Additional proposals considered at the Annual Meeting are set forth
below, each of which was approved according to the respective vote of
the shareholders:
(1) Approval of Amendment to the 1992 Stock Plan and reservation of
500,000 additional shares of Common Stock issuable thereunder.
Cast For Against Abstentions or Broker Non-Votes
--------------------------------------------------------------------
5,135,428,000 37,506,000 476,088,000
(2) Ratification and approval of the appointment of KPMG
Peat Marwick LLP as the Company' s independent accountants for
the current fiscal year.
Cast For Against Abstentions or Broker Non-Votes
--------------------------------------------------------------------
5,639,156,000 9,865,000 1,000
Page 24
<PAGE>
ITEM 6 - Exhibits and reports on Form 8-K
(a) Exhibits:
10.1 THIRD AMENDMENT, dated as of May 8, 1998 to
the CREDIT AGREEMENT, dated as of October
2, 1997, among the Company, as Borrower,
the several Lenders from time to time
Parties thereto, Lehman Brothers Inc. as
Arranger, Lehman Commercial Paper Inc, as
Syndication Agent and Union Bank of
California, N.A. as Administrative Agent,
as amended by the Global Amendment and
Assignment and Acceptance, dated as of
October 20, 1997.
27.1 Financial Data Schedule.
(b) During the quarter ended July 4, 1998, the Company filed the
following reports on Form 8-K:
Current Report on Form 8-K, dated July 28, 1998.
Page 25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Axiohm Transaction Solutions, Inc. by:
August 7, 1998 /s/ Walter S. Sobon
- -------------- ----------------------------------------------
Date Walter S. Sobon, Chief Financial Officer
(Chief Financial Officer)
Page 26
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 4, 1998
EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------
10.1 THIRD AMENDMENT, dated as of May 8, 1998 to the
CREDIT AGREEMENT, dated as of October 2, 1997,
among the Company, as Borrower, the several Lenders
from time to time Parties thereto, Lehman Brothers
Inc. as Arranger, Lehman Commercial Paper Inc, as
Syndication Agent and Union Bank of California,
N.A. as Administrative Agent, as amended by the
Global Amendment and Assignment and Acceptance,
dated as of October 20, 1997.
27.1 Financial Data Schedule.
Page 27
<PAGE>
Exhibit 10.1
THIRD AMENDMENT, dated as of May 8, 1998 (this "Amendment"), to the CREDIT
AGREEMENT, dated as of October 2, 1997, as amended by the Global Amendment
and Assignment and Acceptance, dated as of October 20, 1997 (as further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among AXIOHM TRANSACTION SOLUTIONS, INC. (f/k/a DH Technology,
Inc.), a California corporation (the "Borrower"), the several banks and other
financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), LEHMAN BROTHERS INC., as arranger, LEHMAN
COMMERCIAL PAPER INC., as syndication agent (in such capacities, the
"Syndication Agent"), and UNION BANK OF CALIFORNIA, N.A., as administrative
agent (the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Syndication Agent, the Administrative Agent and
the Lenders are parties to the Credit Agreement; and
WHEREAS, the parties wish to amend the Credit Agreement to effectuate certain
changes requested by the Borrower and the Administrative Agent, all as set
forth in this Amendment;
NOW THEREFORE, in consideration of the premises, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. Unless otherwise defined herein and except as set
forth in this Amendment, terms defined in the Credit Agreement are used
herein as therein defined.
SECTION 2. AMENDMENT OF CREDIT AGREEMENT.
2.1 Amendment.1 Amendment. Section 6.8(d) of the Credit Agreement is
hereby amended by adding the following after the first reference therein to
"property":
"except for a leasehold interest in real property in multi-tenant
facilities where the use of the total facility is exclusively for
offices and where the Borrower's leasehold interest is 25% or less of
the total leasehold,"
SECTION 3. MISCELLANEOUS.
3.1 Effectiveness. This Amendment shall become effective on the date
(the "Effective Date") when the Administrative Agent shall have received
counterparts of this Amendment, duly executed and delivered by the
Borrower, the Administrative Agent and the Required Lenders.
Page 28
<PAGE>
3.2 Representations and Warranties. After giving effect to the
amendment contained herein, on the Effective Date, the Borrower hereby
(i) confirms, reaffirms and restates the representations and warranties
set forth in Section 4 of the Credit Agreement; provided that each
reference in such Section 4 to "this Agreement" shall be deemed to be a
reference both to this Amendment and to the Credit Agreement as amended
by this Amendment and (ii) confirms that no Default or Event of Default
shall have occurred and be continuing.
3.3 Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full
force and effect. The amendments contained herein shall not constitute
an amendment or waiver of any other provision of the Credit Agreement or
the other Loan Documents or for any purpose except as expressly set
forth herein. The Third Amendment and all prior and future amendments,
consents and waivers in respect of the Credit Agreement each shall be a
Loan Document.
3.4 Counterparts. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
3.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
3.6 Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution
of this Amendment, including, without limitation, the fees and
disbursements of counsel to the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
and delivered by their respective duly authorized officers as of the date first
above written.
AXIOHM TRANSACTION SOLUTIONS, INC.
By: /s/ Janet W. Shanks
--------------------------------
Title: Chief Accounting Officer
UNION BANK OF CALIFORNIA, N.A., as
Administrative Agent and as a Lender
By: /s/ [ILLEGIBLE]
---------------------------------
Title: Vice President/SCE
Page 29
<PAGE>
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By: /s/ Michele Swanson
---------------------------------
Title: Authorized Signatory
SOUTHERN PACIFIC BANK
By: /s/ Cheryl A. Wasilewski
---------------------------------
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Dan Dobrjanskyi
---------------------------------
Title: Assistant Vice President
By: /s/ Anthony Heyman
---------------------------------
Title: Assistant Vice President
BSB BANK & TRUST COMPANY
By: /s/ J.B. Wariott
---------------------------------
Title: Administrative Vice President
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
By: /s/ Ray Vadalma
---------------------------------
Title: Senior Vice President
MELLON BANK, N.A.
By: /s/ E.M. Foda
---------------------------------
Page 30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-04-1998
<CASH> 1,811
<SECURITIES> 0
<RECEIVABLES> 36,870
<ALLOWANCES> 311
<INVENTORY> 33,956
<CURRENT-ASSETS> 84,965
<PP&E> 35,203
<DEPRECIATION> 14,752
<TOTAL-ASSETS> 194,444
<CURRENT-LIABILITIES> 41,990
<BONDS> 0
0
0
<COMMON> 24,187
<OTHER-SE> (55,130)
<TOTAL-LIABILITY-AND-EQUITY> 194,444
<SALES> 115,686
<TOTAL-REVENUES> 115,686
<CGS> 74,079
<TOTAL-COSTS> 117,238
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 8,856
<INCOME-PRETAX> (10,421)
<INCOME-TAX> 2,601
<INCOME-CONTINUING> (13,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,022)
<EPS-PRIMARY> (2.00)
<EPS-DILUTED> (2.00)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,932
<SECURITIES> 0
<RECEIVABLES> 15,607
<ALLOWANCES> 88
<INVENTORY> 14,526
<CURRENT-ASSETS> 33,495
<PP&E> 20,569
<DEPRECIATION> 8,730
<TOTAL-ASSETS> 48,830
<CURRENT-LIABILITIES> 19,067
<BONDS> 0
0
0
<COMMON> 3,841
<OTHER-SE> 15,483
<TOTAL-LIABILITY-AND-EQUITY> 48,830
<SALES> 56,614
<TOTAL-REVENUES> 56,614
<CGS> 38,799
<TOTAL-COSTS> 48,228
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> (39)
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 8,188
<INCOME-TAX> 3,212
<INCOME-CONTINUING> 4,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,976
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
